Serbian Slowing Growth May Hurt 2014 Outlook, Nikolic Says

Sept. 30 (Bloomberg) -- Serbia’s economy grew less than
expected in the second quarter, potentially spoiling the
government’s 2014 economic outlook even as it stayed on track to
meet the official 2 percent growth target this year.

The Balkan state’s output expanded 0.2 percent in the three
months to June versus a year ago, weaker than a preliminary 0.7
percent estimate, the Statistics Office said on its website from
Belgrade today. First-quarter growth was revised upward to 2.7
percent from a previous 2.1 percent.

Prime Minister Ivica Dacic’s government is trying to jump-start a recovery after two recessions in three years pushed up
unemployment and caused the budget deficit to balloon. It is now
preparing to host a visit by the International Monetary Fund and
wants to secure a financial backstop to help tame rising
borrowing costs.

The lower-than-expected second-quarter growth won’t affect
the government’s 2013 growth target, said Ivan Nikolic, a member
of the central bank Governor’s Council, the regulator’s
supervisory body.

“Activity will gather pace in the third quarter because of
rising industrial output, and agriculture will pick up again
with late crops,” Nikolic said by phone. “But there is concern
about 2014.”

Farming Grows

Agriculture led the expansion. It increased 20.5 percent,
after 22.4 percent growth in the first quarter. Activity in
mining and quarrying more than halved to 2.8 percent, from 6.6
percent, while manufacturing growth slowed to 1 percent. A
decline in construction deepened to 42.5 percent, following a
27.7 percent drop in the first three months.

“The question is what will drive growth next year, because
agriculture cannot grow more than it did this year and car
industry growth has been pretty much exhausted,” Nikolic said.
“The main concern, however, remains the fiscal deficit and
longer-term fiscal strategy, and those will be discussed with
the IMF.”

The IMF will start a week-long technical mission to Serbia
tomorrow, focusing its macroeconomic fundamentals, activities
related to 2014 budget and long-term fiscal strategy, monetary
policy, public debt, pension overhaul and the labor market, the
National Bank of Serbia said in an e-mail today.

Biggest Gap

With large parts of the economy in recession, the state
should consider “short-term stimuli” including loan subsidies
and public investments, the Foundation for Advancement of
Economics, or FREN, said in a Sept. 17 report.

It said the government should also take measures to cut the
fiscal gap by as much as 2.5 percent of GDP in 2014 from “more
than 7 percent of GDP, according to IMF methodology this year,”
which represents the biggest shortfall in central and eastern
Europe, FREN said.